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Stocks got a good start for February on Monday as the Dow closed over 100 points. This is following one of the worst weeks the markets have seen in quite some time, so it's refreshing for bulls to see the small climb. A favorable January for factory production helped spark the rally in early trading. Bulls are hoping that this will be the first of many "positive" reports to come forth in February.

Other big news hitting headlines were the changes that were made to FHA loans. It was announced that after today, home flippers will now be eligible for FHA loans. Up until now, buyers were required to hold the property for 90 days before issuing it to market. Considering that much of the inventory being sold (especially foreclosed inventory) is to investment buyers, many have not been eligible for FHA. Well, now the game has changed.

There are some restrictions that come with the new policy change (if you can call them that!). First, buyers can't earn more than a 20% profit in most cases, which I believe most buyers won't have a problem with. Also, transactions must take place an arms length away from each other. That way, prices are not artificially driven up to coerce buyers into paying false market prices.

In addition to new changes to FHA, Fannie announced some more incentives they are now offering. Buyers of Fannie's HomePath properties are eligible for a 3.5% assistance fee if owners close before May 1st. The fee itself can be used for anything to improve the property. Whether its closing costs or adding new appliances. It amazes me how much money the government is putting back into the realms of the economy that got us here in the first place!

To some, this may just seem like everyday news, nothing big. To me, it exposes just how bad the residential market remains and the pessimistic outlook the government continues to have regarding home prices. If housing prices were naturally "bottoming", like many economists are claiming, then there would be not much need for such changes. Demand would take care of itself. However, it is clear that incentives are what is keeping the market stabilized, and even the current ones are running out of steam. When you evaluate just how many homes are and will be on the chopping block this year (foreclosed homes!), it is very clear that the government will need all the buyers they can round up, including all of those old mortgage brokers who are now engaged in flipping homes.

Although it seems that the government has no choice, heading down this path could lead us right where we were before. The government is incentivizing people who already have no business buying a home, to now be able to flip them. I am sure most of you can think of that kooky neighbor who is already signing the loan papers, hoping he'll make a fortune. Eventually, this residential crisis will once again be in the headlines. Despite the gains today, I don't see much longevity in a rally. Happy Trading.

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